I'm not sure why you consider credit derivatives to be positive feedback mechanisms. They damp the losses the system otherwise suffers. The point of having the

I'm not sure why you consider credit derivatives to be positive feedback mechanisms. They damp the losses the system otherwise suffers. The point of having the central bank play the role of CDS-issuer is that (a) a central bank alone has an infinite well of capital to draw on to sop up those losses, and (b) it ends up sopping up those losses anyway. So you might as well make the beneficiaries of the central bank's inevitable largesse pay for it, rather than pretending like it won't happen and then doling out get-out-of-bankruptcy-free cards when it does happen. Setting up a market for credit insurance that cannot fail would also help to reveal credit risks in a way that otherwise cannot be done. On Minsky—his thesis is that financial crises are inevitable. I've implied the same thing. Minsky proposed an antidote that relies on fiscal policy, which is politically determined and therefore unreliable (as we learned in the aftermath of the last crisis); I've proposed one that relies on what is essentially monetary policy wrapped in an automatic market mechanism.